1. Profit Planning

2. What is it? What is it? Why is it important? Why is it important? Financial changes occur constantly Financial changes occur constantly Trace in your company Trace in your company Benchmark others Benchmark others Importance of Accounting Importance of Accounting Accounting Records Accounting Records

3. Balance Sheet Financial structure Financial structure Assets Assets Current Assets Current Assets Cash Cash Accounts Receivable Accounts Receivable Inventory Inventory Short-term investments and Prepaid expenses Short-term investments and Prepaid expenses Fixed Assets Fixed Assets Buildings, machines, trucks Buildings, machines, trucks

4. Financial Structure Liabilities Liabilities Current Liabilities Current Liabilities Accounts Payable Accounts Payable Notes Payable Notes Payable Long-term Liabilities Long-term Liabilities Bonds and mortgages Bonds and mortgages Working capital Working capital Owners’ Equity Owners’ Equity Retained Earnings Retained Earnings

5. Income Statement Revenues Revenues Expenses Expenses Fixed Fixed Variable Variable Profit Profit

6. What makes a Successful Small Business? Dun & Bradstreet Dun & Bradstreet More liquidity More liquidity Value balance sheet as much as income statement Value balance sheet as much as income statement Stability over rapid growth Stability over rapid growth Long-term planning Long-term planning

7. Profit Planning Process 1. Establish the Profit Goal How much to do want to make? How much to do want to make? What rate of return do investors want? What rate of return do investors want? 2. Determine the Planned Sales Volume Sales forecast Sales forecast Factors Factors 3. Estimate Expenses the Planned Sales Volume Variable v. fixed costs Variable v. fixed costs

8. Profit Planning Process 4. Determine the Estimated Profit Sales income + Other income - Expenses Sales income + Other income - Expenses 5. Compare Estimated Profit with Profit Goal Did it meet goals? Did it meet goals? 6. List Possible Alternatives to Improve Profits Increasing sales income Increasing sales income Decreasing planned expenses Decreasing planned expenses Decreasing cost per unit / new products Decreasing cost per unit / new products

9. Profit Planning Process 7. Determine How Expenses Vary with Changes in Sales Volume Can base on history? Can base on history? 8. Determine How Profits Vary with Changes in Sales Volume Breakeven point Breakeven point

10. Profit Planning Process 9. Analyze Alternatives from a Profit Standpoint Change sales price Change sales price Change media/ advertising budget Change media/ advertising budget Reduce variable costs Reduce variable costs Change quality of products Change quality of products Stop making and selling low-margin products Stop making and selling low-margin products 10. Select and Implement the Plan